Economic Sector

Vietnam Economy: Stability in Volatile Environment

Posted: Friday, August 25, 2017

In the context of fluctuating political and economic situations, natural disasters and domestic price crises, Vietnam's economy remains stable and continues to grow.

Stable production, high inventories and more start-upsData from the General Statistics Office (GSO) showed that the country’s index of industrial production (IIP) climbed 6.5 per cent from a year earlier in the first seven months of 2017, lower than the 7.2 per cent growth in the same period of 2016, but higher than the 6.3 per cent growth in the first six months of 2017. Manufacturing and processing sectors expanded 10.6 percent and contributed 7.45 percentage points to the overall growth. Electricity production and distribution rose 9 per cent and contributed 0.61 percentage points. Water and wastewater treatment looked up 7.2 per cent and added 0.08 percentage points to the overall growth. Only the mining industry dropped, by 7.5 per cent, causing a loss of 1.64 percentage points to the overall growth.

The inventory index of the manufacturing and processing industry went up 10.4 per cent from a year earlier as of as of July 1, 2017. The sectoral average inventory index was 71.1 per cent in the first six months of 2017.

In the first seven months of this year, the country saw 72,953 business start-ups with a total registered capital of VND690.7 trillion, representing an on-year increase of 13.8 per cent in units and 39 per cent in value. On average, a new enterprise had a registered capital of VND9.5 billion, 22.2 per cent higher than a year ago. If VND979.8 trillion supplemented by nearly 21,400 companies was counted in the review period, the total registered capital would be VND1,670.5 trillion. In addition, 17,549 businesses returned to normal operation, an increase of 5 per cent over the same period of 2016, thus bringing the total number of fresh and returned enterprises to over 90,500 in seven months. Newly established companies employed 720,800 in the review period.

Meanwhile, the country also witnessed 43,274 enterprises registering for temporary operational suspension in seven months, up 19.5 per cent over the same period of last year.

Investment flows on the riseIn the first seven months of this year, State budget investment was valued at VND140.2 trillion, equal to 47.2 per cent of the annual plan and 7.3 per cent higher than a year earlier. Of the sum, central funding was VND31.8 trillion, equalling 45.2 per cent of the full-year plan and rising 5.7 per cent year on year. Local funding reached VND108.4 trillion, equal to 47.8 per cent of the annual plan and up 7.8 per cent year on year.

Vietnam licensed 1,378 new foreign direct investment (FDI) projects with a combined registered capital of US$12.9 billion in the year to July 20, down 2.1 per cent in project but up 48.7 per cent in value year on year. Besides, 677 existing projects registered to add extra US$5.9 billion to their capital base in the period, up 38.5 per cent from a year earlier. In total, FDI value grossed US$18.8 billion in the seven months of 2017, up 45.3 per cent.

Foreign indirect investment (FII) reached US$3.1 billion in seven months. All in all, foreign investors registered to invest US$21.9 billion from January to July, up 52 per cent year on year. They disbursed an estimated US$9.1 billion in the period, up 5.8 per cent.

Big trade deficit, stable exchange rateThe country’s export value was estimated at US$115.2 billion in the first seven months of this year, up 18.7 per cent year on year, while the import value was projected at US$118.3 billion, up 24 per cent, resulting in a trade deficit of US$3.08 billion, or 2.7 percent of total exports. The domestic economic sector incurred a trade deficit of US$14.77 billion, while the foreign-invested sector took a surplus of US$11.69 billion.

The United States remained Vietnam's largest export market as it earned US$23.4 billion from exports shipped to the largest economy of the world, up 9.9 per cent year on year. The EU was the second biggest market with US$21.5 billion, up 12.8 percent, followed by China with US$15.5 billion, up 42.6 percent; ASEAN with US$12.3 billion, up 27.1 per cent; Japan with US$9.6 billion, up 20.6 percent; and South Korea with US$7.6 billion, up 26.4 percent.China was still the largest import market of Vietnam where it spent US$31.7 billion, up 15.8 per cent, followed by South Korea, Japan, the EU and the United States.

Despite trade deficit, USD/VND exchange rate remained stable in July. According to the National Financial Supervision Commission, the exchange rate at commercial banks dropped 1.3 per cent in the seven months of this year and fell 1.14 per cent on the free market. Meanwhile, the central rate rose 1.24 per cent.With rising foreign exchange reserves and outweighed interest rate of Vietnamese dong to US dollar, the commission forecast that VND will depreciate as in the first half. The stable exchange rate was resulted from the abundant supply of foreign currencies, both from direct flows of US$9.05 billion and indirect flows used to buy shares on the stock market, with the portfolio value hitting a six-year high. In the seven-month period, foreigners bought net US$1.2 billion, raising their portfolio value to US$25.4 billion, an increase of 25 per cent over the end of 2016.